Woodside to focus on Browse after Leviathan exit

Angela Macdonald-Smith

Woodside's attention has switched back to its Browse development in WA. Photo: Bloomberg

Woodside Petroleum has named its $40 billion-plus Browse floating LNG project in Western Australia as the basis for its next phase of growth a day after ditching its targeted $US2.5 billion investment in the giant Leviathan gas field in Israel.

In an investor presentation in Sydney on Thursday, Woodside said it would have a "disciplined" investment strategy into its next growth phase, noting its priorities for cash would be servicing its debt, dividends to shareholders, capital investment for growth, and then returning surplus cash to shareholders.

Woodside said that when considering new investment decisions, it saw its ideal investment size at between $US1 billion and $US5 billion in an asset that had "strategic fit and rationale." It expected to have an equity share of between 25 and 40 per cent, for complex, capital intensive projects.

"Every investment must stand on its own merits," it said in the presentation.

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Woodside has previously said it wanted to start initial engineering and design in the Browse FLNG project later this year, and is aiming for the venture to make a final investment decision in the second half of 2014.

"Clearly we're focused on disciplined capital allocation and capital efficiency," Mr Coleman said in the opening presentation at the briefing.

He also said Woodside needs to be "a better explorer", and said the future for the company "remains very positive."

Chief financial officer Lawrie Tremaine said Woodside has $US6 billion of cash and additional debt potential to support its strategy.

He said the hurdle for rates of return from new investments was 12 per cent to 15 per cent, with a payback targeted within 5 to 8 years.

Turning to capital allocation Mr Tremaine pointed to debt servicing as the top priority for Woodside. It was then difficult to prioritise either dividends or capital spending to sustain and grow the business, but Woodside would always seek to do both, he said. After that, surplus cash would be returned to shareholders "when appropriate."

Mr Tremaine outlined a guide for Woodside's capital allocation over the next few years, pointing to an increase in the outlay toward $US2 billion a year in 2015-17, from less than $US1 billion last year.

He pointed to a "measured" increase in spending on exploration, to about $US650 million a year, while between $US100 million and $US150 million would go on investment to sustain the base business each year, about $US300 million a year on extending the life of producing assets, and the rest on the Browse FLNG project.

He said Woodside's higher payout ratio of 80 per cent, which was increased last year, would be continued "for the foreseeable future".

On the Browse project, which is being reworked from the original plan of an onshore LNG plant at James Price Point to a floating plant, Woodside reiterated its view that floating LNG offered the best solution to develop the large, remote offshore gas resource. It said initial work to settle on the design of the project was "progressing to plan" and that marketing of LNG from the venture was "in progress".

The base case for the project involves three identical floating LNG facilities, each producing about 3.9 million tonnes a year of LNG and up to 22,000 barrels a day of condensates.

Assuming a final investment decision in the second half of 2015, commissioning of the project would start 5 to 6 years later – so in 2020-21 – and production would continue for 40-50 years.